Tuesday, July 12, 2011

Why MMT Needs to be Attacked by Austrians

Over at HuffPo Robert Koerner contrasts Austrian Economics versus "Modern Monetary Theory" and calls for "synthesizing them by applying the tools of one to the most important observations of the other could provide something that we desperately need, and so rarely find -- genuinely new insight. "

There is no chance this synthesis should occur. Austrian economics is based on sound deductive logic. MMT is based on sloppy definitions, sloppy thinking and a failure to understand Austrian economics.
Koerner writes:

Austrian theory was developed when the world was on a gold standard, and so it is unsurprising that while it is invaluable in understanding markets and the dangers of an unconstrained fiat monetary system, it is incomplete as a description of the monetary system that we have today.

So what is the problem with the Austrian theory? According to Koerner its that now:

–noun
1. an authoritative decree, sanction, or order: a royal fiat.
2. a formula containing the word fiat, by which a person in authority gives sanction.
3. an arbitrary decree or pronouncement, especially by a person or group of persons having absolute authority to enforce it: The king ruled by fiat.

The Austrian economists discussed fiat money on many occasions:

In The Theory of Money and Credit, Mises wrote (my emphasis):

If the objective exchange value of money must always be linked with a preexisting market exchange ratio between money and other economic goods (since otherwise individuals would not be in a position to estimate the value of the money), it follows that an object cannot be used as money unless, at the moment when its use as money begins, it already possesses an objective exchange value based on some other use. This provides both a refutation of those theories which derive the origin of money from a general agreement to impute fictitious value to things intrinsically valueless and a confirmation of Menger's hypothesis concerning the origin of the use of money. This link with a preexisting exchange value is necessary not only for commodity money, but equally for credit money and fiat money

Government issued money is fiat money, just what the Austrians understood and critiqued. Thus, there is no lack of understanding by Austrians regarding the current economic situation. However, Koerner takes a bizarre twist to imply that Austrians fail to understand the current economy. He writes:

...all financial assets in the hands of the non-government sector were originally spent into existence by the government. The sum of all savings in the non-govt. sector equals the sum of all spending by the government. This is an accounting identity. Therefore, in the aggregate, private savings can increase only if government (net) spends more.

This is simply factually wrong. First, note the switch from the dollar to "all financial assets", this switch is incorrect. Financial assets are different from a currency and most private financial assets have not been "spent into existence by the government". IBM may issue bonds in terms of the dollar, but the bonds themselves were not "spent into existence by the government". The bonds being a financial asset of the holder and issued by IBM, certainly a member of the private sector. Just because the government issues a fiat money does not mean it creates savings. Savings can be created by those holding dollars, who choose to save them, as opposed to hoarding them or using them for consumption. The Federal Reserve can also create savings by creating money and pumping it into the economy as savings but they are not the sole creator of savings.

Further, the sum of all savings in the non-government sector is not in any way equal to all spending by the government. Any government spending as a result of taxes, certainly has no direct correlation with an increase in private sector spending. And newly created fiat money may enter the capital goods sector where it is loaned out by the business sector, but to the degree a central bank buys government securities that money results in government spending, not private sector savings.

Koerner continues his confusion:

...the government today has a total "debt" of $14 trillion, which means only that it has spent into the private sector 14 trillion more than it has taken in from the private sector. Therefore, the private sector owns that 14 trillion dollars (some of it will be held outside the US, of course, as determined by trade deficits/surpluses).

The private sector does not own the "total debt". $1.6 trillion of it is owned by the Federal Reserve. This is the only portion of the debt where the government created money in conjunction with Treasury debt issue.

Koerner than goes on to write that:

Critically, all the while there is any money in the economy - all the while there is any economy at all -- the government must be "in debt".

This is simply not true. There is a lot more on the Federal Reserve balance sheet than Treasury debt. For example, there is gold and $43 billion in currency. None of this would disappear if all Treasury debt were to be retired. A proper valuation of the dollar in terms of gold would result in the money supply staying right where it is, even if all Treasury debt was retired.

In short, while the Federal Reserve does use Treasury securities to create money. The Fed need not use Treasury securities to do so and if the Treasury issues debt, which is bought by the private sector, no new money is created. Thus, there is no necessary connection between Treasury debt and money creation. Either can occur without the other. They are not linked at the hip. They can occur separately.

This confusion by MMTers between government debt and money leads them to some pretty strange places. Koerner explains:

A skeptical reader might ask, "If this is true, why does the government bother with taxes at all, since they don't need the money." The MMTers have a startling answer. First, by requiring the citizenry to pay taxes in its currency, the government ensures that its currency circulates and that it can buy what it needs (since people need the government's currency to avoid prison for non-payment of taxes). Second, by setting the tax levels, the government can drain money from the economy to balance the rate at which it spends money into the economy and thereby prevent excessive inflation.

A better explanation for why the dollar circulates in the economy comes from Mises explanation above. The dollar was once tied to a commodity, gold, and has since then gained acceptance as a medium of exchange. Somehow, if taxes were ended in the country and government spending declined dramatically, I don't think Americans would be burning their dollars. In fact, dollars would likely soar on foreign exchange markets. It is true that taxes used to pay for government spending reduces the amount that needs to be borrowed, but if the borrowing is financed by the private sector there is no net effect on money supply and price inflation. It is Fed operations that is the sole source of money creation, and the Fed can buy Treasury securities or other assets, as witnessed by their recent purchase of mortgage backed securities, to create money. I repeat, there is no necessary connection between Treasury debt and Fed money creation as MMTers believe.

What is Koerner's conclusion to the MMTer confusion:

Austrians should not reject MMTers for what MMT seems to imply. Rather, the nature of the world that the MMTers describe is precisely what makes Austrian economic thinking more important than ever before. Austrians should engage MMT as a descriptive paradigm, even when the policy positions preferred by many of its advocates horrify them...the two paradigms in part describe different aspects of our economic reality: synthesizing them by applying the tools of one to the most important observations of the other could provide something that we desperately need, and so rarely find -- genuinely new insight.

The fact of the matter is that MMTers are muddled thinkers, who don't understand Austrian theory, money or debt. It is a jumbled mess. Austrians need to attack, attack and attack, this muddled thinking.

37 comments:

"all financial assets in the hands of the non-government sector were originally spent into existence by the government. The sum of all savings in the non-govt. sector equals the sum of all spending by the government. This is an accounting identity. Therefore, in the aggregate, private savings can increase only if government (net) spends more."

This is so obviously incorrect as to be laughable isn't it. Private savings would undoubtedly rise if gov't would actually spend less. Capital must be a precursor to credit and to profit and thus future savings.

The MMT or Chartelist definition of net private saving (based on national income accounting) is saving in excess of private investment. This excess saving is invested in new government debt. Without the new government debt, saving and investment are equal and in balance. Hardly a bad thing.

Are you aware that one of EPJ's very own began attacking the "magnum opus" of this muddled school of thinking and got 5/7 into it and then got distracted and still needs to get back and finish it at some point?

With any interest (from the great readers of EPJ, as well as the author himself), parts VI and VII should be finished in due time, as well.

By the way, you're poking around in a nest of deranged, cross-eyed hornets here. Prepare yourself for a barrage of upset, nonsensical responses from MMTers the likes of which will be even more confusing and overwhelming than trying to wade through the average Daniel Kuehn Keynes-lovefest comment!

That is the most incomprehensible pile of horseshit I've ever read. I had to read each part several times before I could make certain I wasn't missing something. If this is what passes for economic "reasoning" in academics today then it is no wonder our fiscal house is in shambles. I can at least somewhat understand Keynesianism, but this is just sophistry of the highest (lowest?) order.

In MMT world (of which I really don't understand that much of), I don't think treasury debt is the government debt they are talking about - it created by the original spending. So imagine a Robinson Crusoe scenario where 100 people are trapped on an island and want to form a government. In order to jump start the economy, they declare a currency by fiat. When they build their first city hall, the government pays people by creating money out of thin air - each unit of money given to a worker is offset by a correspond debt to the government. This spending the event in which "debt" is created. The government continues to tax and spend using this currency to make sure it stays in circulation (vertical movement), while the original recipients of the money circulate it amongst themselves (horizontal movement).

MMT'ers whine about statements like "We are broke as a country" because the government could, if it wanted to, print currency to cover any debt denominated in the currency it controls. It is like an alchemist saying they are out of gold - it just can't happen. The real risk isn't running out of money, but hyperinflation. MMT concerns itself with how fiat systems work, claiming that the US government does not spend either out of debt or revenues - rather that in practice it spends what it wants to spend, and uses debt issuance and taxes to control inflation and interest rates

than trying to wade through the average Daniel Kuehn Keynes-lovefest comment!

Hmmm, it seems to me that I don't necessarily recall reading that, but I may or may not be right to suggest that it's probably more in line with what I said in my previous post regarding this issue that was itself a response to what was said prior, but not what was said after what I said in response to Krugman's post that suggested Keynes meant not what he is being attributed as saying, but I will say that it seems to me that I am not really persuaded by the argument that was made in response to my last post, because I don't recall saying what, but I could be wrong, so I am not saying that all Austrians are wrong, just that they tend to be stuck in a deductive framework that fails to take into account real world data, which seems to suggest, although I could be wrong, that the problem is not capital distortions, but aggregate demand, as is evidenced by the last poster's incorrect comments regarding my statements, so at the end of the day, what I have shown in this post is that Keynes provides a more compelling explanation that anything the Austrians have suggested.

I don't know who you are but you are my new favorite commenter at EPJ.

Besides this knee-slapper, I thoroughly enjoyed your serious elocution on that previous post about Bob Murphy, Keynes and time preference. For a guy I've never heard of on the blog scene before (and especially for a guy with an underscore in his name), you did a near expert job of explaining the Austrian concepts and refuting the Keynesian/Kuehnian nonsense.

Almost makes me wonder if you aren't a pseudonym for someone we might all know who is much experienced in the ways of the Austrian force...

I first ran into MMT on a Krugman comment section where one guy tried to explain why "the government doesn't really need our money, they just force us to pay taxes so they can keep us from spending too much". Slapped my head so hard it hurt.

I haven't done any research into this (I'll read your articles, Taylor) but it seems to me from a lay-perspective that MMT begins from an erroneous foundation that currency is a natural (or man-made) phenomenon in and of itself and therefore has intrinsic value; instead of the correct view that currency is just a representation and a medium of exchange for wealth. This false premise leads to the wrong conclusion that wealth can be created by creating currency. Even the name "Modern Monetary Theory" reeks of shallow, reactionary rationalization that comes with neglect of historical study and a sound, logical theory of the origins of money.

One thing that struck me from the article, though, is the quote and context of

"Critically, all the while there is any money in the economy - all the while there is any economy at all -- the government must be "in debt"

While you refute this point well, Bob, it sounds similar to some of the Austrian theories that posit that, under a central bank and fractional reserve system, there is literally no way to get out of debt. Like quicksand, any attempt to pay down the debt (via savings, for example) simply allows for the creation of more debt. I don't really have a good handle on this--perhaps someone can pick me up and provide a good link to a better exposition of this scenario.

I love Economicpolicyjournal and learned a lot about Austrian economics from this website. Recently I read article on alternet.org and started debating with some people that turned out to be proponents of MMT.

I debated back and forth with them and was unable to sway them out of their bizarre theories. Until I finally wrote the following to them:

"The fatal flaw with your MMT remains the same. With MMT you simply put extreme and unprecendented power into the hands of the government. This would require some person or committee that is going to be responsible for making all of the decisions that MMT requires. In the end a MAN would have to quickly decide how many trillion dollar coins to print and would also have to have the all powerful position of quickly raising and lowering tax rates. And this Man would have to know just the exact amount to add and subtract from the economy among of decisions. Do you really think that one person or committee with this centralized power is capable of making all of these complicated decision for the rest of the country and is actually going to get it right?

It astonishes me that you would be willing to give this type of unprecendented power to a central planner. Do you realize the pandoras box that you would be unleashing? When this central planner gets things wrong he is going to create gigantic economic booms and then when he tries to fix things he is going to create gigantic economic busts?"

When I ask the MMT people the above question they have no answer for me and stop the discussion.

I wonder if this is the Real Bob Murphy that I hear on the radio and teaches at Pace?

Yup. Bad theory needs to be put down no matter how ridiculous. Hayek tragically failed to do so in connection with Keynes' General Theory back in the 30's. I think he didn't want to dignify Keynes' incomprehensible foolishness with a response. He of course missed a vital opportunity to have nipped the General Theory in the bud (and would have). Instead, we've been stuck with that dreadful yoke around all of our necks for more than 70 years now.

This MMT, while clearly ridiculous to those familiar with Austrian theory, has an appearance of insight that might fool those into believing that government spending is a good thing. It might be particularly appealing to those who are not familiar with the origin of money (that's probably 99.9% of the population), as most people incorrectly assume that money is a creation of government. Moreover, this is the kind of thing (like the General Theory) which politicians will use as cover to continue their profligate ways.

It helps explain the fundamental flaws in MMT, and debunks the whole premise quite succinctly. I would love to see an addendum where you post some of the MMT critiques of your analysis.

As I said earlier, it's simply horseshit by another name. Your Crusoe example is an excellent explanation of simple Austrian time-preference theory.

How someone can say, with a straight face, that all money comes from government debt is baffling. I'm sure these are intelligent, well-educated(?) people, so their adherence to a theory so obviously and fundamentally flawed is astonishing. Gubmint schoolin' done done its job of making peace mean war, and up mean down. Thank God for Menger, Mises, Rothbard and their intellectual heirs lest we be left in the economic dark ages.

Please don't use Kroener as an authority on MMT. Those posts were largely ridiculous in terms of their interpretation of MMT; many nuances missed that add up to severe problems that are easily attacked as they have been here (for good reason, in my view).

In short, the four quotes presented above from Kroener explaining MMT each have serious problems--no MMT economist would sign on to any one of them as written.

And, sorry, but no, Bob, not one actual MMT economist suggested your summary was accurate. Some supporters did, but there's a big difference much of the time. As just one point, you didn't correctly describe the significance of "net saving" at all--it's about understanding financial positions and financial fragility in the Minskyan sense. There's no claim whatsoever that the concept of "net saving" is equivalent or necessarily related to capital investment or understanding how much capital investment there is or should be. Those are very important issues in their own right, obviously, but "net saving" doesn't help you with them. Every MMT economist knows that.

I do want to say that Bob's posts and interactions with MMT supporters were quite civil and he did engage MMT'ers very openly and honestly--I have a lot of respect for individuals like Bob that attempt to shed more heat than light.

If you want to see an Austrian sympathetic to MMT who has a pretty good grasp of MMT, has written a bit on it, and has also written on its relation to Austrianism, see Ed Harrison at Credit Writedowns. Though I am aware that many Austrians would not claim Harrison as one of their own, the overarching point is he finds value in adding the MMT explanation of the monetary system to his more libertarian views on policy and the economy in general.

For a different approach, there's Rob Parenteau is mostly an MMT'er and is at the same time quite sympathetic to Austrian economics (he writes the Richebacher Letter).

A third could be this by Randy Wray, one of the leaders of MMT: http://neweconomicperspectives.blogspot.com/2010/07/towards-libertarianaustrian-modern.html .

Has anyone EVER seen an MMTer express an understanding of ANY basic Austrian School concepts like ignorant acting man, the pretense of knowledge, economic calculation or Cantillon Effects, much less derivative concepts like the distortion of the price, investment and capital structure that must occur with their beloved creation of funny money ex nihilo? They seem to completely unfamiliar with economic theory.

As Taylor Conant’s excellent posts on MMT pointed out, the MMTers really do not even have a discernable economic theory except for implicitly believing that they have found a cure for the law of scarcity and that catallactics no longer matters after 1971. All of which is preposterous, of course. No amount of relentless cajoling, prodding, probing or shaming will get the MMTers off their “sector balances” chant and they will simply never engage in a discussion of Austrian School concerns.

Chapter l. INTRODUCTION. THE CONTROLLED ECONOMY The fundamental aim of socialism is not the abolition of private property but the extension of democracy. This is obscured by dogmas of the right and of the left. The benefits of both the capitalist economy and the collectivist economy can be reaped in the controlled economy.

It's not just you. Getting MMTers to even define their terms is half the problem. I think you will see from my initial 5 posts on the subject that even reading Warren Mosler's piece it's very hard to understand exactly what it is that MMTers think about anything or how they define various concepts.

As Bob Roddis has pointed out, it's also not a comprehensive economic theory. It's "modern monetary theory", not "modern economic theory". So, the key is that it's standing on someone else's shoulders. Which means the key question is, "Whose shoulders do they stand on?"

If you can get them to answer that, and then point out the flaws in the base upon which they stand, the rest of the construction topples over along with it. Bob Roddis sniffed out one man and his arrogant, confused, reinventing-a-square-wheel theories, Abba P. Lerner.

But this is part of the game the MMTers play. They don't want to put their theory into the context of its intellectual support. By allowing it to remain a floating abstraction they make it nearly impossible to pin them down in any way that one could offer a meaningful and thorough refutation.

If you want to have a chance here, you can't allow them that opportunity. You must force them to define their terms. They'll inevitably contradict themselves in doing so. That's where the weakness is and that's where you strike.

Over and over. Until you're exhausted and bored. It's kind of like banging a rock with a stick, and about as much fun.

"When I said incomplete­, I was referring specifical­ly to claims made by MMT that were not addressed by Hayek et al., most significan­tly regarding crowding out of private spending by government spending, the nature of government debt, the impact of current government fiscal/spe­nding policy on future fiscal/spe­nding policy, and the idea that money can have value by virtue of the demand created for it by taxation (rather than because it is backed by specie).

FYI, I have taught Austrian economics internatio­nally and have been in correspond­ence with Robert Murphy about this issue. I've also read many (most?) of his articles on mises.org.­.."

I would swear this comment has since been changed and where the ellipses are, there was a statement that Bob Murphy was in agreement with him. What, exactly, "this issue" is, is unclear, as there are several issues in the preceding paragraph.

@BobMurphy: could you tell us what the issue was?

STF writes about Rob Parenteau. He was introduced very disingenuously by John Mauldin in one of his letters as an Austrian economist. If he previously studied it or even taught it himself, fine. But the material reprinted by Mauldin had absolutely nothing to do with Austrian economics.

"Warning: Rob Parenteau is an Austrian economist. In many circles, what he is saying is controversial, if not at least counter-intuitive."

No kidding.

http://www.johnmauldin.com/outsidethebox/the-european-union-trap-4574

John Mauldin himself claims to have first studied economics through the Austrians. I wonder if it was Koerner. It seems various MMTers claim to be authorities on Austrian economics.

1. Abba Lerner was a longtime economic Stalinist. He writes in the preface to “The Economics of Control” that he was long resistant to the any “free market” analysis but finally he thanks Joan Robinson for getting him to overcome his prejudices against “Mr. Keynes great advancement in economic understanding”. Great. A Stalinist tempered with some Keynesianism. That’ll work, right? This is their starting point and helps explain how they can be so joyous when they explain “The government is not revenue constrained!!! [how cool is that??]”

2. In 1980, two years before he died, Abba Lerner (1903-1982) was dabbling in the following price control system based upon this article by David Colander, a co-author of a 1980 book with Lerner:

Lerner found the implications of sellers’ inflation so important that, beginning in the 1960s, he changed his research program to center on finding cures for sellers’ inflation. Initially he toyed with various administrative wage and price control policies, but he found those lacking and soon gave them up. He replaced them, first, with a tax based incomes policy and ultimately, a market based[??!!!] incomes policy in which property rights in prices are set and individuals have to buy the right to change prices from others who change their price in the opposite direction. It was this idea that formed the basis of our market [???!!!!] anti inflation (MAP) book. (Lerner and Colander 1980) Under MAP, rights in value added prices would be tradable so that any firm wanting to change its nominal price would have to make a trade with another firm that wanted to change its nominal price in the opposite direction. Thus, by law, the average price level would be constant but relative prices would be free to change [@page 12]

http://tinyurl.com/4rfk3jk

So, we now know enough about MMT to know that Abba Lerner wrote a book in 1980 proposing a ghastly and barbaric Rube Goldberg system where one would be precluded from raising (setting) one’s one prices without trading the right to do so with somebody else under penalty of statist law. But I thought the MMTers could cure inflation just by changing the tax code. Hmmm.

3. MMT guru Bill Mitchell claims:

"The general reasoning failure that occurs when one tries to apply logic that might operate at a micro level to the macro level is called the fallacy of composition." Really?

http://bilbo.economicoutlook.net/blog/?p=3225

4. More Mitchell, who says “employment transcends its income generating role to become a fundamental human need and right.”:

“(1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.

(2) Everyone, without discrimination, has the right to equal pay for equal work.

(3) Everyone who works has the right to just and favourable remuneration, ensuring for himself and his family an existence worthy of human dignity and supplemented, if necessary, by other means of social protection.

(4) Everyone has the right to form and to join trade unions for the protection of his interests.”

Many of you might recall Mike Norman, who has debated Peter Schiff on occasion. You will be interested to know that he is a hyper-MMT'er as well as an economist for the boutique firm John Thomas Financial. With Mike being a "practicing economist" and major proponent of MMT, I will take his views as representative of the MMT camp.

To see that MMT is non-sense, we need look no further than what "they" believe to be "the economy": http://www.youtube.com/watch?v=6ZavufehR4I

As has been pointed out by Frank Shostak (http://mises.org/daily/770), Doug French (http://mises.org/daily/3843), George Reisman (http://mises.org/daily/2878) and scores of other Austrian Economists. GDP is nothing more than a arbitrary Keynesian measure, and equating it to "the economy" is pure sophistry.

MMT is nothing more than a "re-branding" of the post-keynesian/chartalist school of anti-capitalist thought. MMT has taken its ques from Hyman Minsky, an economist that theorized free-market capitalism is the cause of boom-bust cycles that lead to financial crises. Both of Minsky's parents were socialists - is it any surprise he came up with the theory he did? For an good Austrian break down of Minsky, Frank Shostak does a good job: (http://mises.org/daily/2787).

In sum, Austrians should redub "MMT" to stand for "Modern Monetary Terrorism."

This is going around a lot. It’s this ridiculous false notion that the Fed is printing money and that it has “debased” the dollar.

First of all, the Fed has NO ABILITY TO CREATE NEW MONEY. Only the government can do that via spending. The Fed can only affect the DURATION and COMPOSITION of financial assets held by the private sector. PERIOD!!

Bob Murphy did a good job summarizing the MMT viewpoint while pointing out their fallacious arguments. IIRC, they responded by saying that it was a fair summary, but that he was too idiotic to understand their conclusions. They then went on to paint Mises as a nazi or fascism sympathizer with a few cherry picked out of context quotes.

In other words, their argumentation methods match up perfectly with the progressive left's. Ad hominem attacks and racism charges while avoiding the actual arguments.

At the most basic level, the differences between Austrian economics and Keynesian-like theories is that in Austrian economics is based on the free interactions of people, i.e they use their free will to engage in exchange while in MMT and other Keynesian-like theories the interaction is forced by the oligarchs/slave-masters/rulers as though they own the people as their slaves.

I think from that you can deduce almost all the differences in the theories of the two schools of thought.That might not explain all the details but I think it explains the psychology of the proponents of the theories and the policies they advocate.

Wow, thank you Bob, Bob, Bob, Taylor and Austro-ConCap for exposing the utter insanity, inanity, and idiocy of MMT. I'm fortunate enough to have never encountered it until this post, and now feel sufficiently educated and empowered to dismiss it outright. The lens through which these sophists view the world must be Daliesque in shape and Dadaesque in substance.

Oh, how they will scream and holler when their carefully constructed worldview is exposed as a sham as the fruits of their labors are dashed on the rocks of reality!

Fiat money is the band aid used to cover settlement of the "fiat" interest written into gold standard debt contracts.

The grand artifices of Austrian economics are these:

1) that "natural" interest exists when interest is wholly an artificial construct.

2) that time preference "theory" trumps the second "law" of thermodynamics.

Sidebar: Usurious gold contracts that can't be settled in gold should be allowed to go into default. Instead we have publicly financed police, courts (and prisons) and the FED to enforce the payment of the usurers fiat interest charges. Until this system changes the patrons of the Austrians are sucking off the public tit just as much as any Keynesian.

Koerner does not seem to have a very accurate view of MMT. You are attacking straw men arguments.

But one instance of your faulty understanding is found here

" IBM may issue bonds in terms of the dollar, but the bonds themselves were not "spent into existence by the government"."

You are not thinking of the aggregate economy. If a bank loans money, then there is a corresponding debt which cancels out the loan, so there are no true "net financial assets" being created. A municipality or a company issuing a bond is not creating any new financial assets into the economy as a whole. The purchases of those bonds are with dollars which have their origins in bank lending or in government deficit spending. The former, once again, has a corresponding debt that is owed canceling out its status as a "net financial asset". The latter has created a bond which is truly a new asset. The government spent $100 more into the economy than it taxes out of the economy. Then it issues a bond which is bought for $100 (taking that money "out" of the economy) - so it's all even.....EXCEPT that the bond remains. $100 in, $100 out but the bond remains which can be borrowed against, which pays interest, etc. - a new financial asset. This is known in MMT as a vertical transaction, whereas the IBM bond issuance is a horizontal transaction (it does not change the aggregate financial standing of the private sector).

If a man is offered a fact which goes against his instincts, he will scrutinize it closely, and unless the evidence is overwhelming, he will refuse to believe it. If, on the other hand, he is offered something which affords a reason for acting in accordance to his instincts, he will accept it even on the slightest evidence. The origin of myths is explained in this way.~Bertrand Russell

I think the discussion here is too much categorized in terms of Austrian vs. Keynesian school. Two enemies that cannot fit together. However, I would ask, what is the theory of value? Money should be linked to value. From my view the theory of value is not complete in both schools. When debts cannot be repaid a haircut is necessary. If you just transform debts to money (monetarize debts) that cannot be a solution. How can you pay with debts that can never be repaid? That is a contradiction of itself. Due to the lack of a theory of value it is no surprise that they also promote the idea of helicopter money. I think that money for itself cannot create value, even if the state forces the people to pay with that money. People are not stupid. After WWII when there was no real money in Germany in circulation and it was replaced by a cigarette currency. The same would happen if they implement MMT. In this case people will not trust in this money, because the supply can expand without limits. The independency of the Deutsche Bundesbank was the key for success in Germany. If you combine political power with money power the result would be the same as if you would give a dog the task to watch a butcher`s store, when the boss is not there.